Wiley Brooks and Donald Anderson falsely claimed in an April 7 My Turn that the "FairTax" would be an effective tax solution and would reduce fraud.
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The "FairTax" is a 23 percent national sales tax applied additionally to state and local taxes. For Juneau, this means that our effective sales tax rate would be 28 percent. Today, states and counties with sales tax lose billions in revenue due to remote sales (purchases over the Internet). On the State of Michigan's Department of Treasury page, it states that with a 6 percent sales tax, the loss will be $349 million in taxes during fiscal year 2005. Arizona estimates it will lose $800 million in 2006 with a 5.6 percent sales tax. Under the "FairTax," these states' sales tax rate would jump to around 29 percent.
If consumers are purchasing goods online to avoid a 6 percent (or less) sales tax, what will happen when the sales tax jumps to almost five times its current rate? What happens as our economy becomes increasingly digital and more goods, such as movies, music and software are simply downloaded online? What will prevent companies from moving overseas to avoid the "FairTax?" Why not purchase and download from overseas countries to avoid the tax? This will create a whole new "underground economy." The only way to enforce this tax is massive government audits of consumer spending. If you want government to audit your thousands of purchases, instead of a couple dozen paychecks, go and support the "FairTax."
William Gale states, "Governments have gone on record noting that at rates of more than 12 percent, sales taxes are too easy to evade." Moreover, "Many other countries have attempted to implement a retail sales tax, or variants, and almost all have abandoned the tax and moved to a value-added tax. " However, a flat tax has been successfully adopted by Estonia in 1991, followed by Latvia (1994), Lithuania (1994), Russia (2001), Serbia (2003), Ukraine (2003), Slovakia (2003), Georgia (2004) and Romania (2005). According to Matthew Lynn, "Flat taxes have been introduced in several former communist countries in the past few years. So far, the evidence shows they are working."
We should implement tax simplification that has proven successful, not one shown to fail. If we don't learn from history, we are doomed to repeat it. As Bruce Bartlett writes, "Unfortunately, aggressive ignorance is largely what drives sales-tax advocates and keeps it alive as an issue."